Terronera Ramp Up And LNG Transition Will Drive Major Long Term Upside Potential

Catalysts

About Endeavour Silver

Endeavour Silver is a growing mid-tier precious metals producer focused on silver and gold mines and development projects in Mexico.

What are the underlying business or industry changes driving this perspective?

• Ramp up at Terronera from initial commercial production toward full design capacity, followed by access to higher grade zones and the La Luz deposit, is expected to materially lift silver equivalent output and support higher revenue and operating earnings.
• Planned transition at Terronera from expensive diesel power to lower cost LNG, alongside ongoing plant optimization, is expected to reduce energy costs and improve net margins and cash flow.
• Kolpa’s permits and on-site preparation for a potential expansion to 2,500 tonnes per day, combined with exploration results and resource validation drilling, position the mine to pursue higher production volumes and potentially strengthen consolidated free cash flow.
• Advancement of the large scale Pitarrilla project toward a feasibility study in 2026, with the aim of building a long life, low cost mine, would represent a substantial increase in project scale that could affect consolidated revenue and earnings power if developed.
• Exposure to a higher precious metals price environment, supported by movements in silver and gold prices and a larger production base, creates the potential for changes in mine operating earnings and free cash flow as prices move.

Assumptions

This narrative explores a more optimistic perspective on Endeavour Silver compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Endeavour Silver's revenue will grow by 45.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -28.0% today to 42.0% in 3 years time.
• The bullish analysts expect earnings to reach $435.9 million (and earnings per share of $2.16) by about December 2028, up from $-94.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $289.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from -28.0x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.5x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Sustained high all-in sustaining costs driven by elevated royalties, exploration spend, third party ore purchases and deferred share unit charges could persist above industry averages, limiting the benefit of higher silver and gold prices and constraining net margins and earnings.
• Operational and permitting challenges at Terronera, including electrical reliability issues, dependence on diesel power until LNG permits are granted and limited stockpile capacity, could delay the move to higher grade zones and prevent the mine from reaching planned efficiencies, putting pressure on revenue growth and operating margins.
• Kolpa’s slightly lower than expected grades, higher than anticipated cash costs per ounce and uncertainty around whether a 2,500 tonne per day expansion will deliver true economies of scale suggest the mine may not achieve targeted productivity, which would weigh on consolidated free cash flow and earnings.
• Legacy hedge and derivative positions tied to gold sales, combined with a negative working capital position and the need to refinance the project loan facility, expose the company to continued mark-to-market volatility and balance sheet risk, which could depress reported earnings and limit financial flexibility for growth projects like Pitarrilla.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Endeavour Silver is CA$21.0, which represents up to two standard deviations above the consensus price target of CA$15.79. This valuation is based on what can be assumed as the expectations of Endeavour Silver's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$21.0, and the most bearish reporting a price target of just CA$12.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $435.9 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of CA$12.35, the analyst price target of CA$21.0 is 41.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.